1
Ch 14 Property Investment
Analysis
Capital Budgeting Techniques
Applied to Investments In Land
And Buildings
2
Analytical Ideas in Property
Investment
The standard concepts and techniques
of capital budgeting analysis can be
applied to property investment.
Private investors may find it desirable
to evaluate the equity cash flows
separately from the property cash
flows within an investment analysis.
3
Cash Flow Concepts for
Private Investors
Private investors may need to isolate
their cash flows to debt , usually only a
single mortgage, from the cash flows to
equity, usually their savings.
Private investors may need this
information to record any shortfall
between rent received and loan interest,
for personal income tax measurement.
4
Two Styles of Property Investment
Analysis
1. Property cash flows - the standard concepts from
previous chapters are applied- the property cash
flows do not include financing flows. These flows
are accounted for in the discount rate.
2. Equity cash flows – financing cash flows are
explicitly included in the cash flows. These flows
are not accounted for in the discount rate.
Both styles can employ cash flows on either a
before, or, after-tax basis.
5
Types of Property Decisions
Slide 4 showed two types of property
analysis: there are also three distinct
types of property decisions:-
1. Acquisition of an income-producing
property (or an industrial property).
2. Evaluation of premises to be used by
business.
3. Property development-- purchase and
development of sites.